2017 (5) TMI 1560 - HC - Income Tax

Treatment to interest income - income from other sources - Held that - The substantial question of law on which the appeal(s) came to be admitted to have been directly answered by the Hon ble Apex Court in Commissioner of Income-Tax versus Govinda Choudhury and Sons 1992 (4) TMI 8 - SUPREME Court interest so received partakes the character as receipt for the payment for which the assessee was otherwise entitled to under the contract and thus entitled for statutory deduction. It cannot be separated from the other amounts granted to the assessee under the awards and treated as income from other sources - Decided in favour of assessee.

Summary

Issues involved:
Interpretation of interest received on late payments in relation to contracts for a contractor.

Analysis:
The judgment delivered by the Allahabad High Court involved the interpretation of interest received on late payments in the context of contracts executed by a contractor. The court referred to a previous decision of the Hon’ble Apex Court in Commissioner of Income-Tax versus Govinda Choudhury and Sons, emphasizing that interest received by the assessee due to delays in payment is considered an accretion to the contractor’s receipts from the contracts. The court rejected the notion that such interest should be categorized as “income from other sources” and ruled in favor of the assessee, stating that the interest payable is part of the same character as the original contract receipts. This decision was pivotal in determining the nature of interest received by the contractor and its treatment for taxation purposes.

In contrast to another case cited by the court, Pandian Chemicals Ltd. versus Commissioner of Income-Tax, the judgment highlighted that the interest on late payments received by the assessee from the Electricity Board was directly related to the supply of electricity as per the agreement. Drawing from the precedent set in Govinda Choudhury’s case, the court concluded that the interest received by the assessee should be considered a receipt for the payment to which the assessee was entitled under the contract, thereby qualifying for statutory deduction. This distinction was crucial in determining the applicability of the legal principles to the specific circumstances of the case at hand.

Ultimately, the court resolved the substantial question of law in line with the principles established in the Govinda Choudhury case, leading to the dismissal of all appeals and the disposal of pending applications. The judgment provided clarity on the treatment of interest received on late payments in the context of contracts, ensuring consistency in the application of tax laws and upholding the rights of the assessee in receiving statutory deductions for such receipts.